Times are tough, money is tight and every month comes a holiday with commercials telling you to go out and buy chocolates, flowers, gifts, clothes, jewelry and food for a holiday family feast. And when you load up that shopping cart and hit the check out aisle, an in-store credit card sounds too good to be true (“Save 15 percent on my purchases today? Sounds great!”). But before you begin saving $10 here and $25 there, take a few minutes to find out if an in-store credit card is worth owning or even applying.
Read the fine print
Behind the register, many store associates are paid based on the number of credit card applications they are able to have successfully filled out each day. For some, this can be mean being fired for under-performing, or not getting enough customers to apply for a credit card. This is why some associates seem to be a little more pushy when it comes to the application. Other stores require associates to ask if the customer wants to sign up for a card, but the company does not impose penalties if the associate doesn’t reach a certain goal. Both of these reasons lead associates to ask, “Would you like to sign up for a credit card today and save (a certain percentage) on your purchase?” However, in many cases, the associate is not giving you the complete picture.
Most retailers offer a sign-up bonus as incentive for customers to apply for an in-store credit card. However, we all know that signing up is a hasty process because the customer is then holding up the line, with inpatient guests waiting to make their purchases. While the associate is likely not purposefully trying to mislead you, this high-pressure situation encourages many to skip reading the fine print and fill out the information required. But this can be detrimental to your getting a free government credit score.
Some in-store credit cards affect your credit score because the store reports to one or more of the three major credit bureaus. But did you know that simply applying for a credit card can lower your credit score? When you apply for an in-store credit card, an associate or manager makes a phone call, checking on your credit line. This phone call can lower your credit score anywhere from 5 points to 35 points, based on multiple factors, such as your current credit score, the company’s credit policies and the amount of the credit line on the new card. And this is before you spend a dime. There are excellent sites to obtain your 3 credit reports and scores that can provide resources to learn more about your credit.
Know when to apply for credit cards
Credit cards must be used or they will not help your credit score. If you open a card and it sits at a zero-dollar balance for eternity, the card will likely lapse into an inactive state. A credit score is established by many factors, but two important ones are the balance (how much you owe) and the length of time the card is active. If you must have an in-store credit card, keep the balance low, pay it off quickly and hold onto the card as long as you can.
In-store credit cards aren’t all bad. They can do some good if you’re careful and use them wisely. Saving $3.50 isn’t a good enough reason to open a credit card. But, if you have good credit already, and are looking to get a bank loan (such as a mortgage loan) in the near future, opening a line of credit might be a good idea if all three of these situations apply: you are saving more than $100 on the purchase by opening the card; you have less than three credit cards; and if you are in a position to quickly repay the balance.
This is by no means an all-inclusive list of reasons to skip or apply for an in-store credit card, and in the end it’s all up to you, so be smart, read the fine print and know your income limits.